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Advertisers could punish broadcast bulls

The bullishness of broadcast TV networks heading into the upfront could backfire as a number of midsize TV advertisers threaten to walk away from buying high-priced prime-time programming.

"I have a couple of advertisers who will do that this year if there are double-digit CPM [cost-per-thousand viewer] increases," said Andy Donchin, senior VP-director of national broadcast for Aegis Group's Carat North America. "It's going to come a time, maybe this year, where advertisers can't afford prime time."

Mr. Donchin wouldn't disclose names, but said it would be mid-level clients-which he characterized as those spending $20 million to $50 million during the upfront-that would balk.

Buyer and seller posturing is an integral part of the upfront rituals, and advertisers have for years threatened to shift dollars away from the broadcast networks. Yet those networks have continued to pull in big budgets and high price increases, even during the current recession and despite shrinking audiences.

Still, money has shifted to cable in recent years, and with continued questions about the upfront as a way of doing business, media buying executives insist the threat is now real. At an "upfront summit" in New York last week organized by Advertising Age and Television Week, several buyers said this year could mark a "tipping point" away from broadcast.

"For the first time I see a willingness from clients to move dollars from broadcast into cable," said Steve Grubbs, CEO-North America of Omnicom Group's PHD USA.

Another top media buyer said many of his clients are already planning to move out of prime time. "Certain clients are doing it to amortize their bottom line," said the executive. "Other ones are doing it because they have large Olympic commitments. And the only way you can afford that is take it out of your most expensive daypart. It basically comes down to sticker shock."

If TV upfront prime-time advertisers rebel, they could shift budgets to cheaper cable, syndication or other network dayparts.

stronger gains

Industry estimates from network sellers are that the TV upfront market might see even stronger gains than last year in CPM increases, possibly 10% to 15% higher program prices. (Last year's CPM increases were up 3% to 9% from the year before.)

Media agencies are worried they will have to pay additional increases in coming years against an ever-diminishing supply of network ratings points. Typically, the key demographic of adults 18-49 has seen ratings points drop 3% to 5% per year for the last decade.

"If the trend continues, in a couple of years the average program rating on a network will be a 2, and I'll be paying 30% more than I do now," said Mr. Donchin. "There will be a tipping point. "

"Normally we have budgets marked for network, cable, syndication. ... But you look at the audience fallout and you look at the high prices in the third quarter, I'm better off buying cable," said Mr. Grubbs.

Network executives insist prime-time buys are still good deals for advertisers. Mike Shaw, president-sales and marketing for ABC Television Network, said at last week's conference that upfront prices were cheaper than scatter prices for 11 of the last 12 seasons.

Some categories, such as auto and entertainment, need to buy network prime time to reach mass audiences. Observers expect those marketers will be the ones that will lead the deal making.

Cable sales executives are increasingly attacking the effectiveness of broadcast TV and the CPM gap between the two platforms. They insist the broadcast market has been propped up by limited supply, habit and fear of high scatter pricing. "It's only the scarcity of network CPMs that keeps them up," said Charlie Collier, exec VP-ad sales, Court TV.

It's not only broadcasters under attack, but the upfront process, which sees billions of dollars of marketers' money committed in a frenzy of deals that are made over a few days. "It's crazy and goofy that we do business this way, at 3 a.m. eating cold pizza," said David Verklin, CEO of Carat North America. "The upfront will slowly begin to change."